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Auditing in the Presence of Outside Sources of Information

Author

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  • Mark Bagnoli
  • Mark Penno
  • Susan G. Watts

Abstract

We examine how an auditor’s ability to terminate a multi‐period client relationship provides the auditor with a real option whose value depends on the nature of informational asymmetry between the incumbent and other potential auditors. In particular, we isolate conditions under which the auditor’s private and public sources of information behave as complements rather than substitutes. In such circumstances, increasing the likelihood of publicly provided information induces the auditor to expend more (rather than less)resources in private information gathering activities.

Suggested Citation

  • Mark Bagnoli & Mark Penno & Susan G. Watts, 2001. "Auditing in the Presence of Outside Sources of Information," Journal of Accounting Research, Wiley Blackwell, vol. 39(3), pages 435-447, December.
    • Handle: RePEc:bla:joares:v:39:y:2001:i:3:p:435-447
    DOI: 10.1111/1475-679X.00021
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    Cited by:

    1. Vinay Goyal & Subrata K. Mitra, 2022. "Is the asymmetric impact of aggregate revenue and aggregate earnings on the stock index in accordance with the prospect theory?," International Review of Finance, International Review of Finance Ltd., vol. 22(1), pages 200-222, March.
    2. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    3. Pier Luigi Marchini & Tatiana Mazza & Alice Medioli, 2018. "The impact of related party transactions on earnings management: some insights from the Italian context," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 22(4), pages 981-1014, December.

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